If you’re self-employed and have tried to get a mortgage or business loan with one of the big banks recently, I’m willing to bet that it was a painful experience even if you succeeded in the end.
Big banks don’t understand small-business owners, and they don’t care to. Treating people as individuals doesn’t suit their automated ‘sausage factory’ loan processes. Some of the banks even have divisions called a ‘mortgage factory.’
I know because I worked at a big bank until a year ago, and that’s why I left.
The truth is that even in the face of massive profits, the major banks have become more and more uncomfortable lending money to people who don’t fit their processes. They don’t care about individual stories because they can’t automate them.
Australia’s small-business sector has especially felt the effect of this. If you’re self-employed and have recently tried to get a home or business loan from a major bank, you’ll know exactly what I mean.
As of June 2023, there were 2,520,419 small businesses in Australia, making up 97.3% of all Australian businesses. The sector employs over 5 million people, and contributes almost one-third (32%) of Australia’s total GDP. The title’ engine room of the economy’ is a worthy one.
But many businesses owned and run by individuals and families experience cash flow variations during different business cycles. That’s seen as ‘risky’ by the major banks. They struggle to see past it when assessing the creditworthiness of self-employed borrowers, their income and ability to service a loan.
It’s often easier for a small-business employee with a regular paycheck to get a loan than it is for their self-employed boss.
A desire to automate and reduce costs means you can’t take the time to care about individual needs. That makes it difficult for the 2.5 million self-employed Australians to secure finance, and it is bad for our economy.
It’s why I have been proud to join a sector of specialist lenders that exists specifically to support borrowers who back themselves. Specialist non-bank lenders understand the intricacies of running a business and look at more than just the numbers on the annual tax return.
We know that personal circumstances such as illness and choices such as travel or a change in business direction can result in revenue fluctuations. Perhaps a credit card or ATO payment was missed. The business pays it, albeit late, but their credit record is marred. Bankers describe this as ‘non-prime risk’.
Specialist lenders take the time to understand the risk of individual loans. Rather than computers saying no, there is usually a human finding a way to say yes. The sector gives consumers greater choice and flexibility, allowing thousands of self-employed Australians to purchase the home of their dreams with less paperwork and less obstacles. The sector can also provide loans that the banks would simply never do, such as those for self-managed super funds.
While big banks try to be all things to all people, specialist lenders exist to serve an important niche in the community. Things always work better when you focus on doing one thing really well.
Specialist lenders usually provide better service because they understand the self-employed, know they are time-poor, and find efficient ways to move the process along.
Yet the big banks disrespect and dismiss the specialist lending sector using terms like “shadow banking”. This suggests we and the customers we serve are somehow sketchy when the opposite is true.
Being self-employed takes hard work, courage and grit. It’s only right that the people making such a huge contribution to our economy are supported with borrowing processes that are simple, fast and fair.
